[Federal Register Volume 60, Number 182 (Wednesday, September 20, 1995)]
[Notices]
[Pages 48736-48738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23297]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36231; File No. SR-NYSE-95-17]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Specialists
Displaying the Full Size of Certain Orders
September 14, 1995
I. Introduction
On April 21, 1995, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to issue an Information Memo
discussing procedures under exchange rules with respect to the display
of limit orders.
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 35687 (May 8, 1995), 60 FR 25751 (May 12,
1995). No comments were received on the proposal.
II. Description
The Exchange proposes to issue an Information Memo outlining its
policy with respect to displaying certain orders received by a
specialist. The policy requires specialists to display the full size of
all orders received through the SuperDOT order routing system and the
full size of all orders received by specialists manually that are
subsequently entered into the electronic book. This requirement
includes increasing the size of a quotation for orders at the same
price as the current bid or offer. The policy also sets forth the
specialist's responsibility when a member who gives an order requests
that less than the full size of the order be shown in the quotation. In
that situation, a specialist is only responsible to enter in the
electronic book and show the size requested. The portion not requested
to be shown will be handled manually as a ``held'' order, but will be
last in terms of time priority to all other orders on the specialist's
electronic book at that price. If the specialist is subsequently
requested to show an additional portion, or the remainder, of the
order, the specialist will enter the price and size into the electronic
book, with the order so entered having priority on the book vis-a-vis
other orders as of the time of entry on the book. The specialist will
increase the
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quotation size to reflect the additional amount entered on the book.
Specialists will be expected to display as soon as practicable any
order that, in relation to currently market conditions in a particular
security, represents a material change in the supply or demand for that
security. For example, if the market in XYZ security is 20 bid to 20\1/
4\ offered, 1,000 shares bid and 1,000 shares offered, and the
specialist receives an order to sell 10,000 shares at 20\1/4\, the
specialist will be expected to change the size of the offer to 11,000
shares as soon as he or she becomes aware of the order. If the
quotation already reflects significant supply (demand), and the
specialist receives an order that is relatively de minimis in relation
to such supply (demand), the specialist may take a reasonable period of
time, which should not generally exceed two minutes, before updating
the quotation, so as to avoid constant revisions of quotations that do
not reflect material changes in supply and demand. For example, if the
market in XYZ security is 20 bid to 20\1/4\ offered, 5,000 shares bid
and 50,000 shares offered, and the specialist receives an order to sell
200 shares at 20\1/4\, the specialist will be permitted to wait a
reasonable period of time before changing the size of the offer to
50,200 shares.
Under exceptional circumstances, the specialist will not
necessarily display the full quotation size. For example, as noted in
NYSE Information Memo 94-32,\3\ when a member proposes to effect a
block transaction at a significant premium or discount from the
prevailing market and the specialist is aware of interest on the contra
side, it may be more appropriate for the specialist and Floor
Official(s) to gap the quotation in a security for a brief period,
generally not exceeding five minutes, with a view toward contacting
and/or attracting contra market interest. In such case, the bid or
asked price should touch the prior sale price and reflect size of 100
shares. The same principles will also apply to a situation where there
is a sudden influx of market orders on one side of the market that
would be likely to result in significant price change.
\3\See Securities Exchange Act Release No. 34303 (July 1, 1994),
59 FR 35157 (July 8, 1994).
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Sections 6(b) and 11A.\4\
Specifically, the Commission believes the proposal is consistent with
the Section 6(b)(5) requirements that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, and, in general, to protect investors
and the public. The Commission also believes the proposal is consistent
with Section 11A(1)(b) of the Act, which directs the Commission to
assure the prompt, accurate, reliable, and fair collection, processing,
distribution, and publication of information with respect to quotations
for and transactions in securities. Rule 11Ac1-1 under the Act\5\
requires exchanges to establish and maintain procedures and mechanisms
for collecting bids, offers, quotation sizes and aggregate quotation
sizes from brokers or dealers, processing such bids, offers and sizes,
and making such bids, offers and sizes available to quotation vendors.
\4\15 U.S.C. 78f(b) and 78k-1 (1988).
\5\17 CFR 240.11Ac1-1 (1994).
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The Commission has long believed that transparency--the real-time,
public dissemination of trade and quote information--plays a
fundamental role in the fairness and efficiency of the secondary
markets. Commission efforts to ensure that data concerning trading
interest, volume, and prices is available to investors, analysts, and
all other participants in the U.S. equity markets, have been predicated
on the Commission's belief that transparency helps to link dispersed
markets and improves the price discovery, fairness, competitiveness,
and, attractiveness of equity markets.
In its Market 2000 Study,\6\ the Division of Market Regulation
(``Division'') recommended that the self-regulatory organizations
encourage the display of all limit orders in listed stocks that are
better than the best intermarket quotes, because it believed that such
a requirement would provide a more accurate picture of trading
interest, result in tighter spreads, and contribute to improved price
discovery. In NYSE Information Memo No. 93-12, the Exchange advised
specialists that, pursuant to NYSE Rule 79A.10,\7\ all orders received
by specialists through the SuperDOT system were deemed to be
accompanied by an instruction that they be quoted at the limit price on
the order when such limit price is better than the current quotation.
\6\See Division of Market Regulation, SEC, Market 2000: An
Examination of Current Equity Market Developments, January 1994, at
Study IV (``Market 2000 Study''). The Division also recommended that
the NASD consider encouraging the display of limit orders in Nasdaq
securities that improve the best Nasdaq quotation.
\7\NYSE Rule 79A.10 requires that all Exchange members represent
limit orders at their limit prices when requested by their customers
to do so.
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The Exchange now is expanding this policy by requiring that
specialists display the full size of all orders (unless specifically
instructed otherwise), including increasing the size of a quotation for
orders at the same price as the current bid or offer.\8\ The policy
being adopted herein, in combination with the policy expressed in NYSE
Information Memo 93-12, will require in most circumstances that
specialists' quotations reflect the full size of the best prices
available for securities traded on the NYSE.\9\
\8\For orders at the same price as the current bid or offer,
specialists will be expected to increase the size of the quotation
as soon as practicable when, in relation to current market
conditions in a particular security, the order represents a material
change in the supply or demand for that security. Nonetheless, if
the quotation already reflects significant supply (demand), and the
specialist receives an order at the current bid or offer that is
relatively de minimis in relation to such supply (demand) at that
price, the specialist may take a reasonable period of time, which
should not generally exceed two minutes, before increasing the size
of the quotation. The Commission notes that an accumulation of
orders considered de minimis individually could, in the aggregate,
represent a material change in the supply or demand for a security.
In that case, the specialist should increase the size of the
quotation as soon as practicable to reflect the new aggregate
interest.
\9\NYSE Information Memo 93-12 sets forth the Exchange's view
that all limit orders received by specialists through the SuperDot
system are deemed to contain an implicit instruction to represent
such orders at their limit prices. This memo states that specialists
must reflect SuperDot limit orders in the Exchange's published
quotation at their limit prices as soon as practicable following
receipt of the orders. It also states that the mere existence of
different size between the existing bid and offer, or a substantial
sized bid or offer on the same side of the market as the limit order
(compared to the size of the limit order received), would not
justify failure to represent the limit order at the limit price
immediately. Consequently, the display requirement in Information
Memo 93-12 precludes the application of the de minimis standard
discussed herein (see supra note 8) to situations requiring the
specialist to change the current quotation to reflect a limit order
at a better price. In fact, the policy being adopted in the instant
proposal, in conjunction with the policy expressed in Information
Memo 93-12, requires specialists in almost all instances to change
their quotation upon the receipt of a limit order that betters the
market and also to display the full size of that order regardless of
its size in relation to the size of the existing bid or offer.
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The Commission believes that the NYSE proposal to require
specialists to display the full size of limit orders received through
SuperDot or limit orders received manually and subsequently entered
into the electronic book (unless requested by a member to display less
than the full size of an order) will add to the transparency of the
market for stocks traded on the NYSE. The proposal will ensure that the
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NYSE disseminates quotes that reflect not only the best bid and offer
in a stock, but also the depth of the trading interest at those prices.
This added transparency should benefit investors and promote the
efficiency of the NYSE market.
IV. Conclusion
It is Therefore Ordered, pursaunt to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-NYSE-95-17) is approved.
\10\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
\11\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-23297 Filed 9-19-95; 8:45 am]
BILLING CODE 8010-01-M
